Even a ceasefire does not mean normalization. By 2026, the global economy will be more stagflationary than expected.

The market has reached a consensus on the "ceasefire deal" between the US and Iran, but the key question is when energy trading will return to normal. While a ceasefire can ease pessimism, whether oil prices and economic confidence can return to pre-war levels remains uncertain.

It is expected that the investment environment in 2026 will be more "stagflationary," with rising expectations of central bank rate hikes, which could influence the dollar's performance. Meanwhile, after the ceasefire, micro-market reshuffling will occur, with banks and consumer stocks likely leading the way, while the Japanese market faces challenges.

The "ceasefire deal" can be quickly achieved, but the market may need to wait until energy trade flows smoothly again before truly pricing in a "return to pre-war levels." According to the latest research report from Nomura Securities' Japan team on March 27, the market narrative around the US-Iran "ceasefire negotiations" is taking shape, but investors should also focus on another variable: whether and when energy trade can, and will, "normalize."

The "lag" between ceasefire and normalization will make the investment environment in 2026 more difficult than before the war. "'Ceasefire' and 'energy trade normalization' are not synonymous." A ceasefire can indeed alleviate extreme pessimism about the economy and effectively prevent credit tightening in financial markets. However, until the path to restoring energy trade is clearer, oil prices, corporate confidence, and monetary policy outlooks are unlikely to return to pre-war levels.

The report's clear conclusion: **"By 2026, investors may have to operate under conditions that are more 'stagflationary' than previously expected."** This means that even if the global economy is recovering, inflation and interest rates will be slightly higher than earlier assumptions, while economic growth and stock valuations will be relatively suppressed.

Market pricing for a "more stagflationary" environment: Expectations of rate hikes by central banks are rising, and the market has already begun to incorporate a "more stagflationary" world into its pricing. **Due to sticky inflation, major economies worldwide are increasing their rate hike expectations.** Currently, the market has priced in three rate hikes by the UK this year, two by Europe, and a 0.5 rate hike by the US.

However, the author also questions: if oil prices merely "stabilize at high levels," is such aggressive rate hikes truly necessary to curb inflation? This remains "debatable." In this "mild stagflation" environment, central banks are prone to policy errors. If they tighten too much, the recovery could be stifled; if they tighten too little, inflation will remain sticky, and term premiums will stay high.

Before "normalization," shorting the dollar is not a wise move. In conversations with many overseas investors, the firm finds that market consensus on the "ceasefire deal" has coalesced around two main points: buying US bonds with a steepening yield curve and shorting the dollar. **The first major consensus is the steepening of the US bond yield curve.**

**The logic is very clear: once a ceasefire is reached, expectations of the Federal Reserve cutting rates in the short term will reignite, pushing down short-term rates. Meanwhile, due to the residual impact of high oil prices and increased fiscal spending by the government to address the conflict and stimulate the economy, inflation expectations and term premiums will rise significantly, pushing long-term rates higher. Short-term rates fall, long-term rates rise, and the yield curve naturally steepens.** The second major consensus is the decline of the dollar.

**During the conflict, the dollar was highly sought as a safe-haven asset. Once a ceasefire is achieved and oil prices stabilize, the safe-haven premium in the US market will diminish, reversing previous safe-haven flows. Additionally, the upcoming change in Federal Reserve leadership adds unpredictability to US policy, further accelerating the trend of capital outflow from the dollar.** However, the firm believes that the primary significance of the ceasefire is to lower the probability of the "worst-case scenario": for example, the risk of sudden tightening of credit conditions decreases, and risk appetite recovers.

But what truly determines the central levels of interest rates and inflation is whether the energy trade chain can shift from "restricted, rerouted, and price-distorted" back to "predictable, deliverable, and financeable." This also explains a key judgment in the report: before energy trade normalizes, US assets and the dollar may still retain their relative advantages. The reason is simple—uncertainty increases, funds tend to favor markets with "greater liquidity and depth"; once the energy chain stalls, global inflation and term premiums will be even harder to bring down.

Major reshuffling in US stocks: the shift back to banking, consumer, and capital goods sectors in the macro environment will inevitably trigger fierce micro-sector reshuffling. Those sectors abandoned during the conflict will become leaders during the ceasefire recovery phase.

Since the conflict erupted, tech stocks and energy stocks have performed well, while consumer goods, capital goods, real estate, and non-US bank stocks have significantly underperformed the market. The core reason is the varying impact of high energy costs, financing constraints, and elevated policy rates on different industries.

But fortunes can change. **"If credit tightening can be avoided, bank stocks will outperform the broader market after the ceasefire."** Matsuura Naka emphasizes. As energy trade normalizes, expectations for global economic recovery will quickly rise.

At that time, capital goods and consumer-related stocks, which are highly sensitive to economic cycles, will regain strong upward momentum. The rebound in the real estate market will depend on whether bond yields can stabilize. Japan's dilemma: with the central bank in a passive stance, lowering the yen and stock market expectations, a ceasefire alone is not enough; the normalization of energy trade is the key to life or death.

Japan relies heavily on energy imports. Until energy trade resumes, high oil prices will create a sharp contradiction between imported inflation and weak domestic demand. This puts the Bank of Japan (BOJ) in a dilemma.

Matsuura Naka points out: "It will be difficult for the Bank of Japan to bring its policy rate to a neutral level, and concerns that it is 'lagging behind the yield curve' will persist."

Because the BOJ is forced to remain relatively restrained, inflation expectations will push long-term yields higher. Therefore, it is expected that after the ceasefire, Japan's bond yield curve will steepen (at least in the 10-year region), and the yen will continue to weaken, especially in cross-currency rates.

Based on a pessimistic outlook for this stagflationary long tail, Matsuura Naka has fully downgraded core forecasts for Japanese stocks and the yen—lowering the target levels for the Nikkei 225 and TOPIX indices for each quarter from 2026 to 2027, and simultaneously lowering the yen-dollar exchange rate outlook, believing the yen will remain under significant pressure in the short term.